It wasn’t NAFTA that persuaded Anurag Kumar to base part of his tech company’s offices in Mexico, but it sure helped.
Kumar liked that Guadalajara, the western Mexican city where a majority of his staff would set up shop, was young, cosmopolitan and had a plethora of hungry, highly educated, English-speaking developers looking to break into the city’s booming tech scene. Setting up an office for his Austin-based software development company, iTexico, in a North American time zone would cut costs but keep an ease of communication and travel.
“For them, it’s like flying to a local city — the proximity, the cultural alignment … the ease of travel,” Kumar said of his American clients.
But it was the added bonus of intellectual property protections and passport options for business travel included in the trade agreement that sweetened the deal for Kumar.
As President Donald Trump’s administration tries to renegotiate the 23-year-old North American Free Trade Agreement, which he has called the “worst trade deal ever” and has threatened to end, Kumar and many other Texans are nervous about their economic futures.
With trade talks among Canada, Mexico and the U.S. resuming Saturday in Ottawa, U.S. and Mexican officials are ramping up a tougher negotiating stance, even mentioning the once-unthinkable: life without NAFTA.
In a public forum in Washington this week, the top U.S. trade negotiator said it was uncertain a deal could be reached within the ambitious timetable set by the three countries, which all hold major elections in 2018, and avoid poisoning the campaign rhetoric. Moreover, Commerce Secretary Wilbur Ross told an audience last week that the administration was considering adding a “sunset clause,” which would end the agreement after five years unless all three countries voted to continue it.
Adding to the anxiety, Mexican Foreign Minister Luis Videgaray told the Reuters news agency last week that Mexico would survive without NAFTA and U.S.-Mexico trade would forge on, albeit with higher tariffs.
The defiant rhetoric may be a deal-making ploy by the Trump administration or Mexico trying to call his bluff, but an estimated 400,000 Texas jobs relying on the agreement could be in the crosshairs. Trade is king in the Lone Star State, a fact that leaves many Texans, including some conservative Republicans, aghast at the possibility of ending the trade agreement and questioning the core principles of a state whose southern edge makes up more than half of Mexico’s 2,000-mile border — and which shares strong historic, cultural and economic ties.
“I wonder where the GOP of free markets, respect for individual liberty and appreciation for the U.S.’s place in the world has gone,” said Tony Garza, the former U.S. ambassador under President George W. Bush and now counsel in the Mexico City office of White & Case. He said the Texas GOP suffers from a “dearth of principle” at a time when hundreds of thousands of jobs and border security are at stake.
“I’ve been surprised to see so little advocacy in support of trade and business in our state Capitol,” Garza said. “Seems like we just spent 140 days and a special session chasing our tails on sanctuary cities and bathrooms, and not doing much for business and education.”
State officials have made careful statements renouncing Trump’s idea of ending the trade agreement while expressing support for an update.
Gov. Greg Abbott, who is seeking re-election next year, did not respond to a request for comment. Texas Secretary of State Rolando Pablos said his office would not engage in hypotheticals or conjecture about the negotiations.
“Mexico is not only our neighbor and partner, but it is also our close friend,” Pablos said in a written statement. “The Texas-Mexico trade relationship has always been resilient and we are confident it will continue to grow even stronger.”
From El Paso and Laredo to the Dallas-Fort Worth area, Texas is the nation’s top exporter of goods, helping support more than 1 million jobs across the U.S. The state is home to over 50 Mexican-owned companies, many of them in North Texas, according to The Mission Foods Texas-Mexico Center at Southern Methodist University.
A post-NAFTA era would be “devastating for Texas,” said Gerry Schwebel, executive vice president of the Laredo-based International Bank of Commerce, or IBC. About 75 percent of the U.S.-Mexico land trade, or more than $345 billion, crossed through Texas ports of entry in 2015, he said.
A longtime conservative and Trump supporter, Schwebel described life these days as “difficult, tough and shocking at times.”
“Trade is especially important now that the economic model of Texas is impacted by the hurricanes,” he said. “We need to focus on how we keep our state economy strong with its exports.”
This summer, Schwebel and bank partner Eddie Aldrete helped launch the Texas-Mexico Trade Coalition. They’re also taking their trade talking points to the Midwest, home to part of Trump’s voter base, to spread the message that economic integration goes beyond the Southwest and affects states such as Michigan, Wisconsin and Ohio.
“These states have as much at stake as Texas,” Schwebel said.
With fewer Texas Republicans making the case for Mexico and trade, Democrats like state Rep. Rafael Anchia of Dallas have led the fight to protect NAFTA. He warned that losing Mexico as a key export market for agriculture would deal a heavy blow to business across Texas.
“The bottom line is they have other options,” said Anchia, who works in international trade and investment. “In business, if you treat a partner disrespectfully, it should be no surprise when negotiations end badly. That’s not “Art of the Deal” [Trump’s book] — it’s Business 101.”
About 80 percent of Mexican exports are U.S.-bound. In the past few months, President Enrique Peña Nieto’s administration has been making more trips to open markets wider, from Latin America to Europe. The most recent trip, to China, was led by the president himself.
Duncan Wood, director of the Woodrow Wilson Mexico Institute, said that in such a scenario, “long-term investment would be impacted and there would be a gradual shift in the orientation of Mexico’s exports.”
For entrepreneurs like Kumar, NAFTA opened doors south of the border. But he doesn’t think the agreement is perfect.
Price guidelines and tariff regulations under the current agreement are well laid out for physical goods like avocados, tomatoes, grain or corn. But the internet was still in its infancy when NAFTA went into effect in 1994, so industries like e-commerce and software development are not covered. The lack of coverage sometimes leads to a hodgepodge of regulations across Mexico that are confusing for customers and providers.
Even so, the advantage of working in Mexico has allowed iTexico to grow to 160 employees in seven years, with 150 of those based south of the border. NAFTA gives Kumar’s clients the security of intellectual property protection — a guarantee that proprietary ideas cannot be stolen and cheaply reproduced in Mexico by pop-up competitors — that competitors in Asia and Eastern Europe cannot match. It also offers the company’s Mexican employees an easily accessible temporary work visa if clients need them to spend extended periods of time in the U.S. to complete a project.
“Not having NAFTA will definitely [affect] our business,” Kumar said.
After touring American and Canadian clients through his Guadalajara offices on a recent afternoon, Kumar said he would still have worked in Mexico without the trade agreement’s protections. But it would have been more difficult.
Perhaps it would have taken his business longer to win the National Export Award from the Mexican government, which it received this month. Because of that, he hopes the three countries negotiating in Ottawa can reach an agreement.
“We’re just a small company,” he said, “but this has helped us build a good business.”